Lifetime mortgages are growing in popularity as more homeowners capitalise on rising house prices.
The Equity Release Council’s Autumn 2022 Market Report shows that over the last four years, Wales (50%), the North West (38%) and West Midlands (31%) have seen the biggest jump in the number of older homeowners using equity release products.
It comes as the rise in house prices has pushed the overall valuation of UK housing to a record £7 trillion, after annual house price gains hit 12.8% in May.
While UK households have collectively taken on over £100 billion of extra mortgage debt over the last two years, rising house prices have continued to increase the equity within their homes. As a result, just over a fifth (22.8%) of average UK property is now owned via a mortgage – the lowest figure since before the 2007/8 banking crisis.
The Market Report also found that rising interest rates have affected equity release loans, with the average product rate rising from 4.10% in January to 5.74% in August.
David Burrowes, chair of the Equity Release Council, said: “Our report shows releasing equity continues to evolve from having been an outlier to being embraced as a nationwide trend, with modern flexible products helping to meet a variety of needs.
“Rising house prices have meant that, while national mortgage debt has grown, it is secondary to vast reserves of housing equity which can help multiple generations to achieve financial security by giving them more options and choices in managing their money.
“More than ever in these challenging times, equity release should neither be a default option or last resort; it should routinely be considered, alongside potential alternatives, with both short and long-term financial goals in mind. The greater product choice of the 2010s needs to translate into greater awareness in the 2020s so that every homeowner is prompted to consider where property wealth fits into their financial plans and not miss out on an option that could improve their quality of life.”
Since March, all new products taken out from Equity Release Council members have allowed customers the option to make voluntary partial repayments with no early repayment charge (ERC), allowing customers to reduce their loans as and when they can afford to. Meanwhile, almost nine in ten products (89%) now come with fixed ERCs, which typically decrease to zero over a period of time.
Stuart Wilson, CEO of Air, commented: “Today’s data is an interesting read, as in a lot of ways it confirms trends that we’ve been seeing for a while now. Lenders increasingly tailoring their offering to consumer needs, and in response to adviser feedback, is clearly evident in the fact that all new products since March 2022 have allowed customers to make voluntary partial repayments with no penalty.
“Almost 90% of products also now come with fixed ERC, and about two-thirds provide downsizing protection. These are clearly features valued by clients – especially in the current uncertain market – and advisers need to ensure customers fully understand the features and benefits of the products they are taking out.”
The Council’s analysis also shows four complaints about equity release products were upheld of those published by the Financial Ombudsman Service in the first half of 2022. More than seven in ten complaints come from family members or an executor rather than the customer.
Wilson added: “What is especially positive to see is that so few equity release complaints were upheld by the Financial Ombudsman Service in the first half of 2022, despite applications growing substantially. Advisers and lenders have been working consistently to ensure that clients are matched with suitable products and potentially vulnerable clients are identified and managed well.
“While the aspiration is obviously not upheld complaints so we must keep working, this should certainly be viewed as a positive step forward.”
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